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By: The Practical Guidance Finance Team
This article discusses the energy security and climate change initiatives included in the Inflation Reduction Act of 20221 (IRA) and brings together a collection of related resources that include additional guidance.
PRESIDENT JOSEPH R. BIDEN SIGNED THE IRA INTO LAW ON August 16, 2022, to address climate change, taxes, healthcare, and inflation. Among other things, the statute aims to increase American energy security through policies to support energy reliability and cleaner production along with investments in clean energy manufacturing. This article includes links to related content in Practical Guidance.
The IRA includes $369 billion in energy security and climate change spending over the next 10 years. The energy security and climate change initiatives in the statute are discussed below.
Energy SecurityThe IRA invests in several energy security initiatives, including through the extension and expansion of many existing renewable energy credits and the creation of new tax credits for investments in clean energy technologies or energy production. The statute expands the existing production tax credits and investment tax credits for businesses to support investments in energy storage technologies, renewable energy sources such as solar and wind power, clean vehicles and charging stations, and fuels such as clean hydrogen.
Of particular interest in the statute is a new direct pay feature that will make it easier for owners of renewable energy projects to monetize the value of the tax credits by receiving cash payments instead of tax credits (in some cases eliminating the need to set up complicated tax equity structures). However, only certain tax-exempt entities can use the new direct-pay feature (with limited exceptions for certain types of renewable energy projects).
Specific funding amounts in the statute for energy security include:
Climate Change
The IRA contains substantial funding aimed to reduce emissions from electricity production, transportation, industrial manufacturing, buildings, and agriculture. The statute also includes several incentives for consumers such as direct consumer incentives to buy energy efficient and electric appliances, clean vehicles, and rooftop solar generation. Examples in the bill include:
To find this article in Practical Guidance, follow this research path:
RESEARCH PATH: Energy & Utilities > Energy Financing > Articles
For a list of some key considerations for counsel when contemplating or negotiating a project finance transaction, see
> PROJECT FINANCE TRANSACTION PREPARATION CHECKLIST
> POWER PURCHASE AGREEMENT DRAFTING CHECKLIST
For an overview of project finance, see
> PROJECT FINANCE RESOURCE KIT
For a collection of Practical Guidance resources addressing climate change, see
> CLIMATE CHANGE RESOURCE KIT
For a matrix containing information on the risks in a project finance transaction, see
> PROJECT FINANCE RISK MATRIX
> FINANCING A PROJECT WITH A TAX EQUITY INVESTMENT
> PROJECT FINANCING KEY DOCUMENTS
> PROJECT FINANCE KEY FEATURES AND STRUCTURE
> PROJECT FINANCE ADVANTAGES AND DISADVANTAGES
> OPERATION AND MAINTENANCE CONTRACTS: KEY ISSUES FOR PROJECT FINANCE INVESTORS, DEVELOPERS AND LENDERS
> TYPES OF PROJECTS AND KEY PROJECT PARTIES
> OFF-TAKE CONTRACTS FOR PROJECT FINANCE INVESTORS, DEVELOPERS, AND LENDERS
> GOVERNMENT CONCESSIONS: KEY ISSUES FOR PROJECT FINANCE INVESTORS, DEVELOPERS, AND LENDERS
1. Pub. L. No. 117-169, 136 Stat. 1818 (Aug. 16, 2022).